A key sign of market recovery

For the first time since mid-2010, the number of homes coming on to the market in west central Scotland is higher than it was at the same time last year. That is perhaps just as important a sign of market recovery as the recent sharp increase in sales. Here’s why.

A key feature of the property market since the onset of the recession has been the shortage of new homes for sale. That has been generally attributed to low interest rates and forbearance by mortgage lenders making it possible for home owners to stay put.

That’s true, but only part of the story. The other part is that many would-be movers (you may well be one) decided not to take on the financial obligations that come with moving up the property ladder in the midst of a deep recession.

That is why news that the volume of properties being put up for sale is on the increase is so important. It suggests that confidence in the economy as a whole, and the property market in particular, is growing.

The growth in new instructions is not exactly a rush (yet), but it has been sustained for months rather than weeks. In fact, it first became obvious in other parts of Scotland, notably Edinburgh, earlier this year and is now being seen in the west.

Moreover, the trend is likely to strengthen in the next few months, not just because the economy is expected to improve further next year, but because Help to Buy could allow potentially thousands of home owners with little equity in their property to move home.

Say, for example, you currently have £15,000 equity in your home and you want to buy a larger property worth £200,000. A mortgage with a 15% – 20% deposit would require you to come up with £30-40,000. But a 95% mortgage with the Help to Buy mortgage guarantee scheme would cut the size of the required deposit to just £10,000 deposit, giving you enough equity to move in to a larger home.

Given the number of homeowners who have postponed a move until the economy, or mortgage lending, improves there’s likely to be quite a backlog of people who would like to move in the right circumstances.

And that begs an interesting question. If you are thinking of moving, do you sell now while the number of properties coming on to the market is relatively low? Or do you wait until for the economy to improve further, but risk greater competition from other sellers?

There’s no obviously right answer to that and you would be well advised to take advice from a professional; by which I mean someone who has your best interests at heart.

But if your plan is to wait until house prices rise further, you may have a very long wait. Prices in most parts of Scotland are unlikely to change significantly for some time to come. For more on that, see my previous post: Bubble, what bubble?